By Allan Odhiambo
Posted Wednesday, May 8 2013 at 20:40
Posted Wednesday, May 8 2013 at 20:40
In Summary
- The new plan requires civil servants to contribute two per cent of their salary to the retirement scheme in the first year, five per cent in the second and 7.5 per cent from the third year onwards.
- The government, as the employer, will match every worker’s monthly contribution with another 15 per cent of his or her salary.
- The government will also take out and maintain a life insurance policy worth a minimum of five times the member’s annual pensionable emoluments.
Civil servants will start contributing towards
their retirement benefits in July, setting them up for a lower take-home
pay that they have successfully resisted in the past five years.
The new plan, whose details are contained in a
letter from the Treasury to the International Monetary Fund (IMF),
requires civil servants to contribute two per cent of their salary to
the retirement scheme in the first year, five per cent in the second and
7.5 per cent from the third year onwards.
“The pension reform, which replaces the defined
benefit scheme (DBS) with a defined contribution scheme (DCS) for civil
servants, is set to start on July 1, 2013,” the Treasury says in the
letter.
The government, as the employer, will match every
worker’s monthly contribution with another 15 per cent of his or her
salary. The government will also take out and maintain a life insurance
policy worth a minimum of five times the member’s annual pensionable
emoluments.
The policy comes with disability benefits for each member of the scheme.
Migrating civil servants to a jointly funded
retirement scheme is aimed at slowing down a heavy pension bill that has
been rising by double digit margins annually.
“It [the contributory pension scheme] will reduce
contingent liabilities by half over the medium term,” the government
says in its letter to the IMF.
Estimates by the Treasury show that the total
pension bill for the fiscal year 2013/14 would rise to Sh38.16 billion
from the revised estimate of Sh28.14 billion for the current year ending
June.
The retirement age for civil servants rose to 60
years from 55 years in 2009 as the government sought to re-organise its
finances. It is estimated that about 20,000 civil servants retire each
year.
Kenya’s State employees have since independence
enjoyed a defined benefit scheme that is fully paid for by the taxpayers
through the Consolidated Fund.
The government has since 2008 attempted to convert that pension scheme to a contributory one but lack of requisite laws and structures to guide the process has prevented that from happening.
Last year’s enactment of the Public Service
Superannuation Act 2012 has, however, strengthened the government’s
hand, making it likely that the scheme will finally take effect on July
1.
“Commencement of the scheme will depend on the
date appointed and gazetted by the Treasury Cabinet Secretary,” said
Michael Obonyo, the spokesman for the Treasury’s Pension Department.
The Treasury is also required to set up governance
structures for the scheme, including the appointment of the board of
trustees and fund managers.
Civil servants joining the new retirement plan
will have their past benefits transferred from the non-contributory
scheme. The new scheme also allows employees to access part of their
benefits even before the mandatory retirement age.
The law further allows government employees to transfer pension
benefit credits from a former employer to another with a similar pension
scheme.
Key unions representing civil servants have welcomed the new scheme terming it beneficial to the membership.
Key unions representing civil servants have welcomed the new scheme terming it beneficial to the membership.
“We are looking forward to the commencement of the
scheme as we agreed three years ago. We hope nothing has changed in
terms of the provisions we agreed on,” said Tom Odege, the national
chairman of the Union of Kenya Civil Servants (UKCS).
The Kenya National Union of Teachers (Knut)
chairman Wilson Sossion termed the new scheme ‘particularly attractive’
in its offer of flexibility to members.
“Our earlier concerns with the scheme were
adequately addressed. We initially had reservations about how the scheme
would be managed but the structures have been laid out in law and that
is no longer an issue,” said Mr Sossion.
The unions’ nod marks a departure from its earlier
stand that the scheme could only take effect if the government
compensates the workers for a less take-home through a pay rise and is
seen as increasing the possibility of the scheme being implemented this
time around.
The Treasury is required to establish the Public Service Superannuation Fund into which all contributions shall be paid.
The government is required to deduct monthly
contributions from each member’s salary and pass it on to the fund’s
custodian not later than 10 working days after the end of the month.
The fund will be run by a board of trustees headed
by a chief executive and a chairman who shall be appointed by the
Treasury Cabinet secretary.
The Public Service and the Treasury principal
secretaries will serve on the board alongside representatives of the
Teachers Service Commission, Public Service Commission and the National
Police Service.
The board will also have a nominee each from Knut, the Kenya Union of Post Primary Education Teachers (Kuppet) and the UKSC.
The board’s manager will be required to develop a
comprehensive strategy of investing and managing its funds and assets,
giving regular updates on returns.
All workers who were not on permanent and
pensionable terms of service but were contributing to the National
Social Security Fund (NSSF) shall be admitted to the permanent and
pensionable establishment.
The government is expected to ensure successful
implementation of the contributory scheme in July to ease the budgetary
strain arising from a huge wage bill, poor performance in tax revenue
and high costs of establishing county governments.
Full benefits of the contributory scheme are,
however, only likely to be felt in 15 years when civil servants who are
currently aged 45 years and below go on retirement.
This is because employees of the government aged
45 and above have the option of joining the new scheme or remaining in
the old one, where the benefits paid are computed based on the length of
service and the salaries earned.
Under the new scheme all benefits derived from the contributions
made by the government to a member’s retirement savings account shall
vest in the member after a period of five years at the rate of 50 per
cent of the accumulated amount and increase by 10 per cent for each full
year thereafter up to a maximum of 100 per cent after 10 years of
service from the date of commencement of the Act or from the date of
joining the scheme.
Where a member dies while in public service, the
contributions by the government to the member’s retirement savings
account shall immediately vest in the dependants.
Where a member retires upon attaining the age of
50 years, the contributions by the government shall immediately vest in
the member.
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